Landlord ordered to repay tenants for overstated insurance costs

The High Court has ruled that a landlord must repay tenants for insurance charges that included undisclosed commission payments to brokers.

The case involved London Trocadero (2015) LLP and several companies trading as Picturehouse Cinemas. The tenants occupied parts of the Trocadero Centre in London under leases dating back to 1994 and 2014.

As part of the lease terms, the tenants were required to contribute towards the landlord’s cost of insuring the building. However, it later emerged that the landlord was receiving substantial commission payments from insurance brokers – in some years exceeding £1 million – and was not passing the benefit of those commissions on to the tenants.

The landlord had treated the full gross cost of the premiums as recoverable through the service charge, even though the actual cost to the landlord was reduced due to the broker rebates.

The tenants argued that this arrangement was unfair and sought restitution of the overpaid amounts. The court agreed.

Mr Justice Richards held that the landlord was not entitled to recover more than the net cost of the insurance. He ruled that the word “premium” in the lease referred to the actual amount paid by the landlord to secure insurance, not a notional figure before commission was deducted.

He also found that the landlord’s conduct breached an implied term that any insurance arrangement should be conducted on an arm’s-length basis and in a commercially reasonable manner.

The court ordered the landlord to repay the tenants the excess sums that had been charged through the service charge.

The judgment is likely to be of interest to both landlords and tenants involved in commercial leases, particularly where insurance arrangements include broker commissions or other financial incentives.

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